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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,062 / 5,734
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Selling Options on Futures?

Old January 10th, 2014, 11:34 AM   #2851 (permalink)
World'sWorstTrader
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Futures Experience: Intermediate
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TOS margin

As far as I can tell, it is more than span margin, but not unreasonable. It is definitely much less than IB margin.

As an example yesterday:

Sold NQ 2960 puts @ 2.4 (20 multiplier) - Expire 02/22/14. Initial Margin (TOS)=305 per contract.

Today the TOS margin live is 336.

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Old January 10th, 2014, 12:09 PM   #2852 (permalink)
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Jan Ag. Reports

Are you fellows monitoring the major grain markets today to see if an opportunity arises after the release of the Jan WASDE and other grain reports?? In 5 of the last 6 years one of the 3 (Soybeans, Wheat, Corn) has gone limit up/down. The volatility should help juice up the premium.

I've got my eye on them ready for the report release!

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Old January 10th, 2014, 12:17 PM   #2853 (permalink)
Trading Apprentice
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Selling options is certainly a valid trading methodology. Just make sure that you have the same type of risk management procedures in place as you would an outright Futures position. I saw many a floor trader get complacent and loose a years’ worth of income on a volatility spike. Several blew out altogether (some on more than one occasion).

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Old January 11th, 2014, 12:04 AM   #2854 (permalink)
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kevinkdog View Post
Thanks for the info. I'm still short Feb 6 calls, and Jan 5.5 calls.

From purely a ROI standpoint, right now NG calls and Live Cattle puts are the best things to be in. I see a dozen options at 8% ROI or higher.

KKD, I know this was a while back, but just wanted to say thanks for the heads up on the LC puts, I sold a bunch of Feb 127 Puts on the 19th after investigating your observation, bought them back yesterday for next to nothing, wish they were all that one way, thanks again.

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Old January 11th, 2014, 09:52 AM   #2855 (permalink)
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Harvard16 View Post
KKD, I know this was a while back, but just wanted to say thanks for the heads up on the LC puts, I sold a bunch of Feb 127 Puts on the 19th after investigating your observation, bought them back yesterday for next to nothing, wish they were all that one way, thanks again.

Thank you, and thanks to @ron99 for turning us all on to this method!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old January 11th, 2014, 01:33 PM   #2856 (permalink)
Market Wizard
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kevinkdog View Post
Thank you, and thanks to @ron99 for turning us all on to this method!

kevin you might want to explain the method and what we found out.

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Old January 11th, 2014, 01:43 PM   #2857 (permalink)
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ron99 View Post
kevin you might want to explain the method and what we found out.

I was actually thanking @ron99 for the whole deep out of money selling option experience in general.

Ron also tipped me off to exiting positions early - before expiration. It is also discussed somewhere early in the thread.

I'm still analyzing this, and results may be different for your situation, but in general it looks like you can really boost your ROI (by factor of 2+) by exiting positions early, and not waiting until expiration.

This assumes that you have more trades waiting in the wings for you to enter. Otherwise it is better to hold to expiration.

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Old January 11th, 2014, 02:08 PM   #2858 (permalink)
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Here is one example of early exit.

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This chart uses $5 per half turn for costs.

The Feb CL 70 put if you entered on 10/31 and got out as soon as the price hit bottom or 0.01 using beginning IM X3 had a monthly ROI of 10.4%. It is only 3.9% if you ride to expiration and not pay fees to exit.

For the Mar 70 the monthly ROI when it hit 0.01 was 6.7% vs 3.6%.

Of course the speed in time at which the option gets to lowest price affects the ROI.

And we need to do further study on this.

I needed to have studied it further when others said they were doing it earlier in the thread. My mistake.


Last edited by ron99; January 11th, 2014 at 02:17 PM.
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Old January 11th, 2014, 02:38 PM   #2859 (permalink)
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Graphical Example

Here an example trade, in graphic form.

Ratio = ROI if you exited early on the DTE date shown / original ROI = if ratio > 1, that means your ROI is better than you initially thought!

You sell the option at 23 Days To Expiration (DTE).You calculate your ROI to be X%. FAR LEFT OF CHART.

If you hold it to expiration (DTE=0), you will get X% ROI (ratio=1). FAR RIGHT OF CHART

If you buy it back one day after you sell it, the price likely hasn't changed, and you'll pay fees to close it out. So your ROI is now less than 0 (ratio <0), meaning you lose money. LEFT OF CHART.

As the days to expiration go towards zero, moving from left to right on the chart, your ROI changes every day. At one point, you hit a peak. That is the ideal time to sell. Problem is you do not know the peak until after the trade is done.

Near expiration, exiting early might actually hurt you (Ratio<1).


Hopefully this explains it a bit. If not, please ask questions.

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Old January 12th, 2014, 07:07 AM   #2860 (permalink)
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kevinkdog View Post
Problem is you do not know the peak until after the trade is done.

A lot of the equity monthly option strategies (40-60 DTE) I have seen use a fixed % of total return if left to expiry ie most were 10-15% of total poss profit and if this wasnt hit in the first few weeks then it was closed out regardless to free up capital for other trades.

All trading though has the 'what if/hindsight' (not knowing) issue, smthg everyone has to deal with whether by having strict rules/discipline, automation or whatever works for them...

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